How HSBC Holdings plc Could Rocket 138% In 5 Years

HSBC Holdings plc (LON:HSBA) could be set to deliver super returns for investors today.

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The shares of leading FTSE 100 bank HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US), currently trading at 606p, have risen 17% over the last five years, lagging the 57% gain of the index.

But the story could change over the next five years, as HSBC’s shares have the potential to rocket 138%.

Here’s how

Like all banks, HSBC has gone through a period of significant restructuring and cost-cutting since the financial crisis of 2008/9. The Board has “no doubt that a stronger HSBC is emerging from this process”, and that the bank has “strong potential for growth”.

In particular, HSBC has positioned itself to capitalise on two major long-term trends: growth of international trade and capital flows; and rising wealth, particularly in Asia, the Middle East and Latin America.

City analysts are as optimistic as HSBC’s management that the bank is well-positioned for growth. The analysts are forecasting that earnings per share (EPS) will increase at a compound annual growth rate (CAGR) of just over 12% from last year’s 51p to 90p by the year ending December 2018 — a total increase of 76%.

hsbcIf the shares track earnings, and continue to rate on their current historic price-to-earnings (P/E) ratio of 11.9, the price will of course rise by the same 76% as EPS, putting HSBC’s shares at 1,069p five years from now.

Furthermore though, the analysts’ earnings forecasts point to a company whose performance, 10 years on from the financial crisis, would merit a higher P/E. If HSBC re-rated to the FTSE 100’s long-term average historic P/E of 16, we’d see the shares at 1,440p — a 138% rise from today’s 606p.

Investors would also bag five years of chunky dividends, as today’s starting historic yield is 5% and analysts are forecasting a dividend CAGR of around 11%. We’d see a total of 194p a share paid out over the period. Put another way, a £1,000 investment in HSBC today would deliver £320 in dividends alone.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester does not own any shares mentioned in this article.

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